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FHA may be Your Best Choice

posted by Stephen Katz @ 3:35 PM
Saturday, June 18, 2011

The demise of subprime, no-documentation and no-down-payment loans is more than three years in our rear view windows. Many folks with credit challenges and little cash have turned to Federal Housing Administration (FHA) and Veterans Affairs (VA) loans for their home financing needs.

While the FHA has recently tightened itsstandards, it’s one of the only options for a low down payment. Consider the following:

  • FHA loans require just a 3.50 percent down payment in most areas.
  • Maximum allowable loan amounts vary from $271,050 to $793,750, depending upon the area.
  • Interest rates are competitive. Today’s 30-year fixed rates are as low as 4.50 percent with no points or origination fees.
  • 3/1 and 5/1 adjustable-rate mortgages are available.
  • Most lenders will accept FHA applicants with credit scores as low as 620.
  • FHA allows gift funds for 100 percent of the down payment from a family member.
  • FHA allows the seller to contribute up to 6 percent toward the buyer’s closing costs and or prepaids.

The downside to an FHA loan is the mortgage insurance premium, or MIP. FHA applicants must pay MIP in two ways: first, an upfront fee of 1 percent of the loan amount, which can be financed into the loan, and second, an additional annual premium of 1.15 percent, added to the mortgage payment. But if an FHA loan is the only option, it’s well worth it.

Let’s look at the example of a $300,000 purchase. The down payment would be 3.50 percent, or $10,500. The loan amount would be $289,500 plus the 1 percent upfront MIP premium of $2,895, totaling $292,395.

At 4.50 percent, the monthly principal and interest payment (P&I) equals $1,482. Add the annual 1.15 percent premium of monthly $277 payments, and the total monthly payment, excluding hazard insurance and real estate taxes, equals $1,759. Its not a bad deal for a $300,000 house.  If you’re a looking to buy and are hoping for a low cash outlay, an FHA loan is definitely worth investigating.

Stephen Katz

(770) 309-0939 (direct) or (866) 742-8400 —

For the past 18 years, Stephen Katz has built a successful business almost entirely on referrals. As your mortgage consultant throughout the home loan process, Stephen will explain the pros and cons of all available mortgage programs and help you choose the financing option that is best suited to your needs.
Throughout the loan process, he will keep you informed and will respond quickly to your requests with answers and solutions.

Consistently a top producer, Stephen is a Mortgage Bankers Association “Diamond” Award winner, a Georgia Mortgage “Top Gun” and has closed almost half a billion dollars in loans. Put his knowledge and experience to work for you!

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